Banking Sector Update - Latest Cashless Initiative Largely Positive For Banks

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Wednesday, September 18, 2019 / 05:09PM / By CardinalStone Research / Header Image Credit: Expresscomputer.in


As part of its cashless policy initiatives, the Central Bank of Nigeria (CBN), yesterday, announced that banks will now be allowed to take charges on customer deposits in excess of N500 thousand (individuals) and N3 million (corporates), respectively. This new measure builds on previously issued guidelines related to charges on large cash withdrawals. Please see the previous and current charges in the tables below: 

According to the CBN, the new policy will take effect today (18 September 2019) in Lagos, Ogun, Kano, Abia, Anambra, Rivers states and the FCT, while a nationwide rollout is set to take effect on 31 March, 2020.

 

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Our first thoughts

Overall, we see the news as largely positive for banks' fees and commission income, notably for cash and e-Business related transactions. Although banks already charge fees on withdrawals in excess of the regulatory limits, we believe the introduction of charges on deposits increases scope for additional income. First, an induced migration to alternative channels is likely to increase deployment of POS and ATM terminals as well as encourage debit card issuances. This is also likely to lead to increased adoption of banks' USSD and online platforms by customers. Secondly, customers who fail to migrate will have to pay the required processing fees, which is also likely to be supportive of banks' fee incomes. BDCs, petrol stations, traders and small businesses who handle a lot of cash are likely to be negatively impacted by the new charges.

We, however, note that the CBN had previously backtracked on attempts at nationwide implementation of similar initiatives in the past, and we do not rule out the possibility of similar occurrence come March 2020. It is also unclear how the general populace will react to this measure, given that Nigeria remains a hugely cash-driven society. The timing of the new charges may stoke negative sentiments, given the recent spate of fiscal measures such as VAT increases and introduction of VAT on online transactions, which are likely to shrink household wallets.

 

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